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Noble Lords: Hear, hear!

Lord Geddes: My Lords, of course it is essential to have the right environment and climate to encourage inward investment into this country. Other noble Lords have rightly concentrated on that area. My premise is that it is also important that those who do invest in this country can communicate easily in our own language. There is a certain amount of chicken and egg in the situation. Clearly those who have made the decision to invest within the UK want their non-British employees based in this country to be able to speak English proficiently. In that context, I shall cite an example in a moment.

Outside the UK it is almost as important--at one remove, if you like--to encourage proficiency in English for those for whom it is not their first language in that, I believe most strongly, such proficiency in English may well influence an overseas company to

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invest in the country where there is already proficiency in its language. The BBC World Service (both radio and television) continues to have a very important role in that context.

The English language, and particularly spoken English, is now acknowledged to be a most valuable invisible export. Its teaching and examination represent an annual source of income for this country which, although difficult to quantify, is certainly measured in terms of hundreds of millions of pounds. In the exploitation of the opportunities presented by this demand for English, Trinity has adopted a policy of reinvestment to finance the design and development of a whole range of products, including: graded examinations for students of all ages and levels of ability; publication of syllabus support materials; and qualifications for the certification of teachers of English to speakers of other languages.

By way of illustration on the point of reinvestment, while Trinity's revenue has grown by 21 per cent. over the past three years, its reinvestment has increased by 75 per cent. I have just two more statistics to prove the overall point. Over those past three years, Trinity has increased the number of its examiners by 44 per cent. and a number of countries in which the examinations are held by 43 per cent., including, last year, countries as diverse as Uruguay, Argentina, Mexico, Hungary, Iran and, indeed, Outer Mongolia.

I mentioned earlier that the knowledge of English overseas was itself a potential encouragement for companies to invest in this country. There is also a growing demand from companies which have already taken that decision to invest to improve the linguistic capabilities of their employees. Last year, Samsung (a multinational South Korean company which has already made huge investments within this country) recognised a fundamental need for their employees to gain greater proficiency in English. It approached Trinity to seek assistance. The response has been to initiate a project in close co-operation with the company, with the objective of developing a corporate language training programme, tailor-made to suit the specific needs of the company but designed in modular form with the capability of being adapted and modified to suit the varying requirements of other multinational companies which might recognise the need for similar services.

There is every reason to be optimistic about the continued advancement of English as the international language of communication from all areas of business and commerce. A recent survey conducted world-wide by the British Council as part of its English 2000 Project found that 95 per cent. of respondents agreed with the proposal that,

    "English will retain its role as the dominant language in world media and communications".

Companies employing a workforce which is made up, either wholly or in part, of speakers of languages other than English will need to address that problem if they are to enjoy real success in international markets. It will not surprise your Lordships that I believe that that will result in a substantial demand for corporate, English language training services. Expansion in that context

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and substantial growth in demand from those overseas should--it is to be hoped--encourage foreign companies to invest with linguistic confidence in this country.

5.7 p.m.

Lord Goold: My Lords, in his absence, I should like to add my congratulations to those already expressed to the noble Lord, Lord Borrie, on his maiden speech. I should also like to thank my noble friend Lord Oxfuird for initiating this debate on such an important topic. Inward investment, particularly to Scotland over the past decade, has been a real success story, with many high quality jobs created.

More than any other sector in Scotland, electronics has benefited from inward investment. Electronics is a global industry with overseas-owned plants generally highly integrated within European and global networks. Hence, the situation of the Scottish industry will continue to be strongly affected by competitive dynamics among the major players. Equally, the stability of growth of overseas-owned units in Scotland will largely depend on the importance to the parent of its Scottish facilities in terms of plant role and performance and the local operating conditions which support plant performance vis-o-vis sister plants elsewhere in its world-wide corporate network. Those local operating conditions are good at present but they may not always be so, as I shall show.

The overseas-owned sector has provided a major stimulus to productivity improvement in Scotland and is a source of relatively high-paid jobs and capital investment. There is evidence that it has also helped indigenous investment, which is vital.

In electronics, as in other areas of inward investment, Scotland has benefited significantly from the development of the European Union to date. Scotland, with a generally well-educated workforce, is a good, efficient base for entry into the European market.

The United Kingdom is the main recipient of US and Japanese investment in the European Union, with nearly three times that of Germany, four times as much as France, six times as much as the Netherlands, and seven times as much as Italy. That has had a particularly beneficial impact, especially in the central belt of Scotland.

A short time ago there was a tremendous outcry at the closure of the Ravenscraig steelworks in Lanarkshire, yet today unemployment in that area is lower than it was when Ravenscraig was operating. That is thanks, to a very large extent, to inward investment. There are, however, two matters of great concern on the horizon which could put all this at risk. This Government have opted out of the social chapter but the Opposition have committed us to it in the event of their winning the next general election. This would, I believe, be disastrous.

I should like to give just one example which illustrates clearly the cost of the social chapter. A British company which I know employs a young married man at its office in Brussels. That individual's net cash salary--his take-home pay--in 1995 was £29,415. The

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gross equivalent in Britain would be about £45,000. However, the cost in 1995 to the British company situated in Brussels was £82,239. That additional sum of around £35,000 is what the social chapter and Belgian social laws and taxes cost, and it is what would be added to employment costs in this country if we were to join up to the social chapter. We should have none of it.

The other concern which, like others, I wish to mention is the "tartan tax". Not being a civil servant I am allowed to call it a "tartan tax". It is what we would have if Labour's devolution policies for Scotland were enacted. Does anyone really believe that if taxation in Scotland were 3 per cent. higher than in other parts of the United Kingdom, Scotland would not suffer? Of course it would suffer. Companies would relocate, as we heard the noble Lord, Lord Laing, say earlier. Higher paid individuals would move their main place of residence south of the Border. I cannot believe that an American, or a Japanese, or indeed any company, would choose to go to central Scotland rather than the north of England if there were a 3 per cent. difference in tax in England's favour.

The actions of this Government to encourage inward investment have paid great dividends. The actions of this Government in opting out of the social chapter are fully justified by the figures I have given which show Britain with several times the inward investment of our European partners. The actions of this Government in devolving power to Scotland and Scottish local authorities--but without the monstrous, costly bureaucracy which would attach to a tax raising assembly or Parliament--are correct. If we had the social chapter and if we had a Scottish assembly, not just inward investment would suffer but every worker or would-be worker in Scotland would suffer. As we heard during the discussion on the second Starred Question earlier this afternoon, unemployment is higher, and is rising, in our European partner countries. That is what would happen here if the Opposition policies were to be introduced. This Government's record on inward investment in recent years is excellent and long may it continue.

5.13 p.m.

Lord Rathcavan: My Lords, I am grateful to the noble Viscount, Lord Oxfuird, for this opportunity to address the subject of inward investment which is of such vital importance to my region of Northern Ireland. I should declare an interest as chairman of the Northern Ireland Tourist Board and also as a director of a French owned and an Australian owned company.

The Northern Ireland Tourist Board is, of course, deeply involved in attracting--and with some success--inward investment to our tourism infrastructure. In terms of job creation we are also making level progress with our colleagues in the Industrial Development Board of Northern Ireland. As I have said to your Lordships before, new jobs and a return to economic normality are the cement of peace.

Since the ceasefire in September 1994, and during the subsequent peace process, we can at last operate on an almost even playing field with other regions of western

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Europe and our neighbours in the Republic of Ireland in particular. The figures for inward investment inquiries and visits by potential investors have soared. Considering that it is a long-term process to convert inquiries into real projects, much progress and success in creating new jobs from inward investment have already been achieved in 1995. Particular tribute should be paid to the noble Baroness, Lady Denton, our Minister responsible for the economy in Northern Ireland, for her tireless efforts in travelling the world and selling the region of Northern Ireland so successfully as a cost-effective and efficient production base for the European Union market.

I hope that the noble Baroness, Lady Denton, will also keep an equally keen eye on how the peace dividend--that is, the reductions in security related expenditure--is being distributed. We see signs of the Treasury trying to get its hands on it. That is fair enough in due course, but at this critical time for Northern Ireland it is essential that the cash benefits of this peace dividend are channelled into the right places, particularly those agencies which are responsible for the pursuit, from so many angles, of inward investment, greenfield projects which we need so badly, and for which we are now well placed. Those agencies must have adequate funding if they are to remain competitive. I hope that the Minister will pass on those comments to the noble Baroness, Lady Denton.

Northern Ireland is overcoming its natural disadvantages of peripherality. One of these disadvantages is high electricity prices which are forcing some companies such as Shorts--a fine example of successful inward investment--to generate its own electricity. I hope that the proposals by the electricity regulator, which were announced this week, to change the way in which our electricity industry has been run post-privatisation, will be heeded and will lead to lower prices. However, against that, we have one of the best telecommunication systems in western Europe using a fibre optic network with much lower tariff costs than our competitors.

We have an outstanding resource in the availability of well educated and skilled employees. Only last week it was announced that Northern Ireland had the highest pass rates in GCSE and A-levels of any region in the United Kingdom, and the highest proportion of school-leavers going to third level qualifications. We also have an excellent record in labour relations and a positive contribution from our unions.

Often the key to a decision to locate in a particular region is not the level of production costs, the tax breaks or the cost of transport, telecommunications and energy, but the quality and flexibility of the labour force. The absence of the social chapter is another increasing advantage in our hands as our principal and natural competitor, the Republic of Ireland, begins to introduce legislation on the many EU directives which are involved in the social chapter.

The net benefits to the Republic of Ireland of full membership of the European Union are huge but the social chapter will add substantially to its non-wage labour costs. It will make some employers less disposed

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to employ women and it will prevent jobseekers from obtaining part-time work, while employers will work out ways to expand their businesses and increase production without increasing employment. That is the view of IBEC, the equivalent of the CBI in the Republic of Ireland. I believe that the measures of the social chapter will discriminate against normal and natural job creation.

It is interesting to reflect this week on the current case of the Fokker aerospace company in Holland. That situation is threatening 1,500 jobs in Northern Ireland and perhaps 20,000 jobs in Europe. It is a salutary reminder of what happens when one has a social chapter. Fokker is going down because the social chapter made it impossible for the company to shake down its business quickly enough. In the real world of the airline industry we are dominated by US manufacturers because they have a flexible labour market. One cannot compete if one cannot control one's costs. That is what happens to an employer who is unable to respond to his competitors in the marketplace, as was the case with Fokker.

In Northern Ireland we now have a unique opportunity to heal the wounds of the past 25 years. Inward investment must play a vital part in that healing process of a return to economic normality. We are, on the whole, well positioned to seize the opportunities that now exist as world companies seek to globalise their operations and position themselves for market access. I believe that, given a fair wind, we shall succeed.

5.20 p.m.

Lord Lyell: My Lords, like many noble Lords, I wish to begin my remarks by thanking my noble friend Lord Oxfuird for giving us the opportunity this afternoon to discuss a subject which is rarely discussed in your Lordships' House on a Wednesday. It is an area where politics tend very much to take second place. We are discussing jobs and we are discussing winning. In addition, my noble friend has given us the opportunity to hear an outstanding maiden speech by the noble Lord, Lord Borrie. All of us hope that we shall hear further speeches of such quality from him often in the future.

Speaking once again, with another noble friend with the same name as myself, as tail-end Charlie on the list of speakers, I feel rather like the character in the Danny Kaye song,

    "The king is in the altogether",

because all the points that I should have liked to make have been made by fellow Scots. My noble friend Lord Goold, as a typical Scottish chartered accountant should, made a very interesting point about net and gross pay which had me working with my pen rather than my calculator. He also mentioned the electronics industry. My noble friend Lord Laing represented Scotland very well on behalf of the food industry and in particular the biscuits industry. I thought that we might have heard from one of my noble friends on the subject of films, but I shall pass that by for today.

The theme which has run through the debate is the need to identify success in areas where industry and entrepreneurs in the United Kingdom do well, to build

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on that and to identify friends who will help us to do so. The debate last week initiated by my noble friend Lord Astor, which has been referred to today, dealt with a typical example of an industry where there has been change, namely the British motor industry. We heard from my noble friend what he saw yesterday at Jaguar. Everything that was discussed a week ago in my noble friend's debate related to an outstanding example of inward investment and the utilisation of the enormous talents of small and middle-sized companies in one particular field of motor sport in the United Kingdom. The noble Lord, Lord Wallace, will appreciate that that is one example of the British mittelstand of small companies thrusting up and building on and developing a core business of the motor industry.

Nineteen years ago, when my party was situated on the Benches opposite where the noble Lord, Lord Peston, and his noble friends are sitting, I recall taking part in debates on a Bill which completely rewrote the law on patents in the United Kingdom. As part of my studies on that Bill--which were carried on by my noble friend Lord Belstead--I became very interested in and heavily involved with the pharmaceutical industry. That is one indigenous British industry that has been immensely successful. It has also attracted a great deal of inward investment.

This morning I obtained a very interesting but lengthy document from, of all places, not the Department of Trade and Industry but the Department of Health. It is called Prescribe UK. My interest has nothing to do with the fact that for the first time in 25 years I am taking antibiotic pills as a result of skiing injuries. The document is a valuable source of information.

That booklet gives very good professional and specific advice, sources of information and useful addresses. The Prescribe UK initiative includes an advisory team to advise outside investors who may wish to come to the United Kingdom to make use of the outstanding talent, achievements, scientific knowledge and education which we have throughout the United Kingdom. The advisory team includes the chairman of the number one company in the Financial Times list of companies, which happens to be a leading pharmaceutical company. There are five members of the team from various government departments, all of whom have had considerable experience in industry, accountancy or other disciplines which are relevant to investment and to presenting businessmen from all over the world with figures, facts and almost instant advice. The team includes one investment banker from a leading Scottish firm in the City, I am delighted to see. He, too, was involved in pharmaceuticals. There are also two chief executives from the industry. With such an advisory team, all of whom can give superb and relevant advice, we see a perfect example of partnership. That is what the debate has been about.

In one chapter of the booklet, entitled Investing in the United Kingdom, it is pointed out that 98 of the 100 top companies mentioned in the American Fortune magazine have their European headquarters in the United Kingdom, and 100 of the top 200 Japanese companies have their European Union headquarters here. More than 100 have their research and

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development headquarters here in the United Kingdom. As my noble friend Lord Astor mentioned last week, all the development on Subaru and Mitsubishi rally cars is done in the United Kingdom.

In 15 years inward investment from all over the world has increased sevenfold. Therefore it seems that we are doing one or two things right. Is it the English language, is it the committed workforce that has been mentioned, or is it the fact that foreign executives so appreciate living in the United Kingdom, as is mentioned in the booklet? The booklet also indicates that schooling, housing and lifestyle are all relevant. All those factors are relevant in the success of a large number of companies about which we have heard today. It is also the fact that the indigenous pharmaceutical industry has attracted inward investment from throughout the world. It is a great success story. I am grateful to my noble friend Lord Oxfuird for giving me the opportunity to tell your Lordships about that today.

5.27 p.m.

The Earl of Shrewsbury: My Lords, I am indebted to my noble friend Lord Oxfuird for bringing the debate before your Lordships today. I add my congratulations to the noble Lord, Lord Borrie, on an excellent maiden speech. It is high time that such a serious subject, which impacts on the future of our industrial and commercial wellbeing for many years to come, was debated by people who have real experience and knowledge of the world outside Parliament.

It is often said that the British people are at their best when they are talking down the successes and achievements of this country. Sadly, we in the UK are often recognised as whingers. That should not be the case. We have a great deal to be proud of.

My thrust today is to sing the praises of the Black Country, Birmingham and the West Midlands in general. It is an area where I both live and work. It is a success story of some proportion. I place the Black Country first on the list because that is where, in small villages, through the skills and natural resources which were available, the first Industrial Revolution was produced. Some people think that it occurred near Telford, at Ironbridge. I can assure your Lordships that that is not the case.

I must declare my interest as Chancellor of Wolverhampton University, a very pleasant task and completely unremunerated. It means that I have a few letters after my name and, for the first time in my life, a qualification.

I have taken advice from chambers of commerce, development agencies and many friends involved at the cutting edge of day-to-day business within the West Midlands region. From the business point of view it is all too easy to carp habitually about the lack of help from government. Government are often perceived to be the providers of large grants and the cure for all ills. It is therefore interesting to hear businessmen in my area state that things are improving, that financial assistance from government is not at the top of their agenda and that interest rates are at a historically low level. It comes as a breath of fresh air.

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We rely heavily in the West Midlands on inward investment. We have a number of excellent organisations whose role it is to sell our attractions to foreign business. We have, for instance, the West Midlands Development Agency, the Black Country Development Corporation, the chambers of commerce and the TECs, to name but a few. The Black Country Development Corporation is, of course, winding down its operations. It has a limited life and will come to an end in 1997, but it has done much good work.

Various areas in our part of the world have been awarded enterprise zone status and those areas have been revitalised to a great degree by private sector developers taking on substantial risks. Recently, the Prime Minister announced that he wished the UK to become the enterprise centre of Europe. We in the West Midlands have the capacity and capability to do just that. Already in Birmingham we have the National Exhibition Centre, the International Convention Centre and many other venues of international importance. We have a first rate international airport which is about to benefit from a large expansion and investment programme. I pay tribute to Sir Bernard Zissman, a past Lord Mayor of Birmingham, who had the vision to expand the attributes of the city and make it a world class venue. He has done much to promote the region to foreign companies; he is an excellent ambassador for the West Midlands.

The region has been successful over a long period in attracting and retaining international companies. In the past five years overseas companies have invested £3.2 billion in the area, creating over 17,000 jobs and safeguarding over 25,000. Those figures do not include the recent acquisition by BMW of Rover. The region is now home to 1,100 overseas companies from 30 countries between them employing 120,000 people. The largest investing countries are currently the USA, Germany and Japan. However, the West Midlands does not enjoy the high profile of other regions such as the North East for the simple reason that comparatively large numbers of foreign companies locating in our area typically generate only between 50 and 60 new jobs. That is not a large enough figure to grab the headlines. One of our problems in attracting large companies is a lack of substantial sites of quality. The failure to secure the investment by Siemens was attributed to the lack of large sites and poor quality land.

The general perception of those whose business it is to sell the benefits of locating in the West Midlands is that there is a lack of political will and a certain failure of promotional bodies, politicians and others involved in the attraction process, to sing from the same hymn sheet. That has to be addressed if the region is to build on its past success and attract more foreign investment. In addition, funding for the West Midlands Development Agency is inadequate with the result that too little has to be spread too thinly on promoting a wide range of potential sites. In short, WMDA is under-supported compared with similar organisations in other areas of the UK. A level playing field is needed.

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Another factor of considerable concern to the foreign investor is the congestion on the M.6 and M.5 motorways in the Birmingham area. The motorways block up on virtually every working day. I live perhaps a 40-minute drive from Birmingham on a good day. The journey can take me three hours; that is ridiculous. Companies need first class road communications, especially since many manufacturers these days use the "just in time" method for acquiring components. Those traffic problems have to be alleviated. The cost to industry is enormous. We need the Birmingham northern relief road as a matter of some urgency.

The planning process has to be improved. The time it takes to achieve planning consents is often unacceptable, and the bureaucracy involved far too great. I am aware of a number of instances where a foreign investor has been put off coming to our region because of major delays and obstacles in planning terms. This causes frustration and considerable cost to developers. As a consequence the opportunity to create jobs and strengthen the local economy is passed by. That is not good enough.

The future success of the region in attracting inward investment depends, first, on an improved and improving product to sell, greater financial and non-financial support from both regional, public and private sector supporters, the development of a regional profile, an identity to match that of the North East, and a reduction in the fragmentation and duplication of business support organisations which so often confuse investor companies.

5.35 p.m.

Lord Hughes: My Lords, there is time to spare since previous speakers have not used all the allocated time. I intervene because of the speech by the noble Lord, Lord Laing. I have spoken to the noble Lord to let him know that I would refer to what he said. I was glad that I did so because I discovered two factors. First, what the noble Lord said was not a threat to close the Glasgow factory if devolution came to pass in Scotland. He told me that it had been said when he was chairman of United Biscuits. That speech was made five years ago. Therefore, the noble Lord, Lord Laing, has no knowledge of what United Biscuits would do today because he no longer has anything to do with the company. Consequently, no threat was made by the noble Lord, Lord Laing, today. I am glad that that matter has been clarified.

Secondly, I discovered that the noble Lord did not know that corporation tax would not be part of the so-called tartan tax. The authority of the assembly would be only to increase or reduce income tax by up to 3p in the pound, but corporation tax would remain the same throughout the United Kingdom. As the noble Lord, Lord Laing, knows, and as others ought to know, companies do not pay income tax. Therefore, there is no reason to fear, even if an income tax change were to come into operation, that it would affect the desire or the willingness of companies to locate in Scotland.

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My next point has nothing to do with what the noble Lord, Lord Laing, said. As I understand it, when the Scottish parliament, assembly, or whatever it is to be called, comes into existence, the power to exercise the change in income tax is most unlikely to be made during the first parliament in Scotland. My understanding is that if the members of that assembly believe it to be desirable to have a greater income at their disposal they will wait until the next election and seek a mandate from the people of Scotland either to have higher tax and better services, or for the tax to remain unchanged. That is the main reason for my intervention.

Perhaps I may now refer to the speeches of the noble Baroness, Lady Seccombe, and the noble Lord, Lord Goold. The noble Lord did not go so far as the noble Baroness, Lady Seccombe, who seemed to indicate that it was very unlikely that companies from abroad would locate in Scotland if there were a Scottish assembly. I was a Minister in the Scottish Office for seven years. I was chairman of Glenrothes Development Corporation for three years before I became a Minister. I was chairman of East Kilbride Development Corporation after I ceased to be a Minister. I know what happened to investment in Scotland during those years. There is no reason to fear that another Labour Government would have any less success in attracting investment in Scotland than previous Labour Governments.

The point made by the noble Lord, Lord Goold, was slightly different. He mentioned investment in Scotland from abroad, especially during the past 10 years. Has he any reason to believe that it has been any better over the past 10 years than during the previous 10 years? Has he any reason to believe that it was any better than what happened under Labour Governments? I do not believe that the people of Scotland have anything to fear in relation to the location of industry from anything that may be done by a Scottish parliament.

I am in no better position to predict what will happen in the future than anyone else. The noble Baroness, Lady Seccombe, indicated what might happen in Scotland if there were a Labour Government but she is in no better position than I to make forecasts.

5.40 p.m.

Lord Ezra: My Lords, the noble Viscount, Lord Oxfuird, must be pleased at the wide-ranging nature of the speeches which have emerged during the course of the debate. Like some other noble Lords, I wish to declare an interest: I am chairman of a company which is a subsidiary of a large French group in the environmental services sector. It has given me the opportunity of understanding inward investment at first hand. I shall come back to that in a moment.

There is no doubt that the inward investment development has been on a large scale and has generally been very successful. The latest report of the Invest in Britain Bureau indicated that by the end of 1994 no less than £131 billion had been invested in Britain by overseas companies. Twenty four per cent. of net output was represented by that investment, 32 per cent. of

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manufacturing investment and no less than 40 per cent. of manufacturing exports. Those are remarkable figures which show great success in mounting the campaign.

I wish to be assured that we are receiving all the benefit we can out of that massive investment. I was pleased to note from the speech of the noble Lord, Lord Lyell, that the companies with which he was familiar were doing development work over here. There was a fear that when the large Japanese motor companies first established themselves in Britain all the development work would be done in Japan and we would simply become a nation of assemblers. I believe that that is not so, a great deal of development work is being done over here.

I also wish to raise the subject of the supply chain. The very big enterprises, with their massive requirement for components and services, present us with a potential double benefit. Not only do we receive the benefit of the direct investment and direct employment, but also there is the benefit that we can derive from supplying the services and components that are required on a competitive basis. I hope that we can be reassured that the Invest in Britain Bureau does not lose sight of the companies that it attracts to Britain once it has taken its decision and that it follows through with after-care service to ensure that we receive the best benefit.

Another form of benefit which I believe we should derive was referred to by the noble Lord, Lord Desai. He said that we could benefit from other management styles. Particularly in the case of the Asian countries that invest here, and in France and Germany, companies tend noticeably to take a longer-term, more strategic view of investment than we do in this country. We have much to gain from their management approach.

Here I wish to refer to my own experience. The company of which I am now chairman was at one time a medium-sized publicly quoted company in the sector of energy management. One of our shareholders was a French company which was eventually taken over by a larger French company, the Compagnie Generale des Eaux. In due course it made an approach to us to acquire my company. That was done on an agreed basis. At the time of the acquisition, the company for which I was responsible employed some 650 people and had a turnover of about £50 million. That was in 1986. This year, the group which has been based on that initial acquisition has a turnover of £1,500 million and it employs 20,000 people. That is a vast increase which shows the initiative that has been taken.

From the change in ownership I noticed immediately the impact of the company's long-term strategic thinking. As chairman of a minor publicly quoted company, I found that we were hounded from pillar to post by the analysts who forced us to have regard to only one thing: the dividend. All other longer-term aspirations took secondary place. As soon as we were acquired by the larger group, long-term thinking came into the picture. I can give an illustration of that not far from here. The company which I still chair was responsible for the building of one of the largest enterprises for converting waste to energy, the SELCHP plant near Deptford. Some of your Lordships may have

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visited it. The plant depends upon a steady supply of waste material and it was built to take 400,000 tonnes of waste material. It cost £100 million to build.

At the time that the decision was taken to go ahead with the project, we did not have all the waste material under contract and we took a risk; we thought that it would come in due course. The plant was built to the best specifications to conform to all the regulations from Brussels and Britain. That plant has been held up as being the most efficient and up to date in its sector. I give that as an illustration of the thinking that lies behind the actions of investors who take a longer term view.

Sometime before the French interest was shown in my company, I approached a few large British companies. I had come to the conclusion that the future for that medium-sized company, which I considered was in a growth market, could only be assured if we had a large partner. I regret that I found no interest at all. It was felt that the growth prospects were either non-existent or too small to worry about.

That leads to the next point I wish to make which concerns the anxiety expressed by the noble Lord, Lord Borrie, in his excellent maiden speech. I am glad to see him among us. He is a friend of long standing and we have done much work together. The point was also mentioned by my noble friend Lord Wallace and the noble Lords, Lord Laing of Dunphail, Lord Haskel and Lord Wade. While appreciating the level of inward investment, they all expressed concern about the smaller level in relative terms of indigenous investment. If we compare the performance in indigenous investment in Britain with that of other OECD countries, we find that they are investing at a level of 22 per cent. of GNP per annum and we are investing at a level of 16.5 per cent. That is noticeably less.

I find it surprising that, having created a climate in which Britain proves attractive to foreign investors, that same climate and those same factors--flexible labour market, efficiency, lack of regulation, the large market in the UK, and the even larger market at our doorstep in Europe--apparently do not have the same impact on firms already established in Britain. The level of investment brought in is more than counterbalanced by the level of investment outside, particularly in the United States. Whereas other countries come to the United Kingdom to be near the European market, we appear to be moving further afield into the United States. That requires a bit of looking into.

I should have thought that in the long-term strategy for this country we ought to find out why it is that the factors that attract others apparently do not sufficiently attract our own indigenous industry. The Invest in Britain Bureau does not suggest by its name that it is meant only to attract investors from overseas, although that is what it does. I suggest to the Minister that perhaps it should devote part of its attention to stimulating more indigenous investment. Not only overseas investment, but indigenous investment and a better balance between the two, seems to be what is required.

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5.50 p.m.

Lord Peston: My Lords, I, too wish to congratulate the noble Viscount, Lord Oxfuird, on prompting this interesting debate with so excellent a collection of speakers. I also wish to congratulate my noble friend Lord Borrie on his maiden speech. It was first-class. I echo the words of the noble Baroness, Lady Seccombe (it is about the only remark she made with which I agree) in looking forward to hearing my noble friend speak again--if only to take some of the burdens off me in all the various matters that I seem to have to deal with all the time!

I regard myself as an internationalist and a believer in free trade. I do not want to stop foreigners investing here, just as I do not wish to see foreigners preventing our people from investing abroad. Those who favour placing barriers to trade and to international capital movements (if there are any left in our country) are really announcing to the world that in a fair economic competition we cannot win. That is certainly not my view. To the question that the noble Viscount, Lord Oxfuird, puts before us--namely, whether inward investment is a good thing for this country--broadly speaking, taking the pluses and minuses into account, my answer is unequivocally yes. If that were all there was to it, this debate could have ended more or less a moment or two after it began. However, there are some sub-texts, some underlying themes, which have to do with the economic performance of this Government. I have a slight sense that some bits of politics have found their way into this debate in one way or another; I therefore feel an obligation to join in on one or two of those matters.

To get down to some serious economics, let us start with precisely the point made by the noble Lord, Lord Ezra, which I regard as fundamental. If the United Kingdom is such a good location for economic activity, and if it attracts foreign-owned multinationals, why do those same forces, whatever they are, not attract our own firms? There seems to be a paradox. The UK is attractive to foreigners for the production of, for example, motor vehicles, various forms of consumer electronics, semi-conductors and computers. But why is it not attractive to our own businessmen? One could give many examples. To take just one, in the field of non-defence electronics, there is no major UK-owned company left.

I agree with my noble friend Lord Desai that we must take a global view (to use the current buzzword) and in a sense argue that it does not matter who owns what. Certainly I agree that workers in this country require investment, and they do not in any way worry about ownership. What they want is jobs, high productivity and good pay. But the fact remains. Certainly, wearing my economics hat, I do not understand why the position is as it is. To put it in another way, which I find extremely intriguing, direct foreign investment here is largely in manufacturing. That is not entirely the case, as was pointed out, but it is to a very considerable extent.

We invest a great deal ourselves. A great deal of direct investment goes out from this country, as the noble Lord, Lord Ezra, and others pointed out--but

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again, interestingly, not in manufacturing. It is typically in hotels, retail trading, insurance and all that sort of thing. It is also, as was pointed out, much more typically in the US than in the European Union. I do not have an answer to the question. I am certainly not in this sense pointing a finger at the Government. I really should like to know why, somehow, we are not good at things which I see no reason why we should not be good at.

The reason given in the textbooks as to why foreigners come here and are successful is that they have skills, especially managerial skills, and intellectual property that we do not possess. If that is true, it is a terrible reflection on our own people. I can only say that I hope it is not true. Looking at the issue that way, the facts are disturbing.

There is a related fact, to which the noble Lord, Lord Laing, first referred. I entirely agree with the noble Baroness, Lady Seccombe, that we must not forget the past. I am about to quote the past in some detail. Let us start in 1979, when a cataclysmic event occurred; namely, a change of government. Comparing the ratio of private investment (gross domestic fixed capital formation) to GDP with that of the present day, bearing in mind the enormous expansion of the private sector as a result of privatisation, we find virtually no change. If we then add to that the large proportion of investment undertaken by foreigners through direct inward investment, the reflection cast on the propensity of our own entrepreneurs to take risks is appalling. Since they tell us that on the whole they favour the Conservative Government, one wonders what they would do under a government that they did not favour in terms of having confidence in their own country.

To be slightly acerbic, I love Scotland and I thought the Scots loved Scotland. The thought that all the Scots will abandon Scotland simply as a result of 3p. on the rate of income tax is not an entirely convincing argument. I just do not believe it. They might follow Dr. Johnson's advice in terms of the high road to England, but for quite different reasons. Everyone argues about that, and we ought to have a debate on it at some time. I cannot believe that the Scots will abandon the country they love simply as a result of a couple of pennies on the rate of direct taxation.

I also offer a word of apology. A number of noble Lords made remarks with which I totally disagree, but I shall not have time to attack them. I hope that they do not regard that as a discourtesy on my part. I am not short of comments and there will be other occasions on which I shall make them, but I want to stick to the time limits of the debate. Since, as the noble Baroness, Lady Seccombe, suggested, this matter is to be viewed in a historical perspective, I shall quote just a few figures. From 1979 to 1994 our gross domestic product rose by one-third (about 31 per cent.). Those were the good days. In the bad old days, 1964 to 1979 (the previous 15 years), gross domestic product rose by 43 per cent. So I am happy to remember the past.

A more significant point that intrigues me (I have paid tribute to this before) is that manufacturing productivity has risen very distinctly since this Government came to power. There can be no doubt

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about that at all. I regard it as about the one achievement in economic terms of the Conservative Government. But a couple of paradoxes still remain in that connection. Despite the very considerable change in manufacturing productivity, manufacturing output from 1979 to 1994 rose by only 8 per cent.; whereas in the bad old days, as I keep repeating, from 1964 to 1979, it rose by over 25 per cent.

That certainly requires an explanation. How can we be improving our efficiency and yet not finding it profitable to sell more? How can we have moved from a surplus on the balance of trade, generally and in manufacturing, to a deficit? I do not know the answers to those questions. Again, I am not trying to make a political point; I am simply asking the Government not to make political points on areas which are--if I may be a bit snooty--perhaps slightly more complicated in terms of economic analysis than is sometimes appreciated.

The noble Lord, Lord Wallace, raised two questions. He uttered some fears in regard to foreign ownership. I am not sure that I agree with him in that regard. It is one of the things about which the Americans and the Canadians have argued, but on the whole is not the case.

The noble Lord, Lord Lyell, mentioned pharmaceuticals and I should perhaps declare an interest as chairman of the Office of Health Economics. The pharmaceutical industry, which is multinational in both directions, engages in an enormous amount of research in our country. As I understand it, the Japanese motor car firms are themselves engaging in research and development also. Therefore we do not need to have the fears that, say, the Canadians had about the Americans.

That is also beginning to be true--I should welcome the Minister's comments on this point--in regard to management. I know one or two American-owned firms in which the domestic management cannot rise above a given level. But, as I understand it, that is ceasing to be the case. I believe that in the Japanese-owned firms--and, for all I know, in the German-owned firms as well, though I am less well informed on that--there would not be a discrimination against our best people rising to managerial top positions. That would be important; it would have political ramifications and it would worry me.

I have not touched on the questions posed by the noble Viscount, Lord Waverley, and the noble Baroness, Lady Seccombe, and perhaps also those put by the noble Lord, Lord Goold, in relation to social chapters and minimum wages. It is about time we had a debate on those matters so that they can be brought out into the open; we can put our arguments forward and I can at least say where my side stands.

I ask noble Lords to reflect. Under the current Government, a few years ago unemployment rose to 13 per cent. But there was no increase in social welfare costs taking place at that time. As far as I am aware, there has been no great increase in social welfare costs recently in France and Germany to cause their rise in unemployment. Our unemployment figures fell and then rose again, but that had no connection with the points raised by those who object to the social chapter. The

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social chapter cannot yet have come to bite. Most of the relevant matters are not yet in action. Therefore, before coming to any definite conclusions, one ought to pause.

Finally, before sitting down I shall make a nasty remark about the DTI. It has allegedly done some research into the effects of a minimum wage, which the noble Baroness, Lady Seccombe, quoted. My view is that if that is the department's idea of research, goodness help us. Logically, if we have a minimum wage and all other wages rise pari passu, we do not have a minimum wage; we have a general wage increase. Other things being equal, if nominal demand is constant and we have a general wage increase, it will be deleterious to the economy.

If the DTI wishes to do some research--I am available at my normal extremely high consultancy fee--I shall explain how to do it. The department has not yet read the available literature (summarised in a number of easily accessible US journals), but it will discover that the matter is infinitely more complex and, to quote myself from a few weeks ago, one cannot demonstrate that a minimum wage leads to unemployment. That cannot be done on the empirical evidence and for that matter it cannot be done on the theoretical evidence. But that is a subject to which I should like to return. What I most look forward to, as always, is listening to the Minister.

6.4 p.m.

The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie): My Lords, like all those who have engaged in this debate, I too welcome the opportunity provided by my noble friend Lord Oxfuird to debate inward investment and I join in the widespread remarks of congratulation extended to the noble Lord, Lord Borrie, on his maiden speech. We are delighted to hear his contribution and look forward to those he will make in the future.

Inward investment is one of this Government's and this country's greatest success stories. At one point during the debate there was a slightly querulous questioning of the desirability of inward investment. I am delighted that the noble Lords, Lord St. John of Bletso, Lord Desai and, latterly, Lord Ezra and Lord Peston, made it clear that they recognise that it is a valuable contribution to our economy.

The competitiveness of our economy is nowhere better demonstrated than in our ability to attract inward investment. Over 40 per cent. of all US, Canadian and Japanese investment, together with over 50 per cent. of Korean and over 55 per cent. of Taiwanese investment in the European Union comes to the United Kingdom. Our stock of inward investment is now £147 billion, up from £44 billion in 1985. Ninety-nine of the Fortune top 100 companies have chosen to locate in the United Kingdom. Our record in attracting inward investment within the EU is second to none and there is an encouraging, freshening trend to the United Kingdom from within the European Union itself.

The facts speak for themselves. Since 1979 the Invest in Britain Bureau has registered more than 4,200 inward investment projects with more than 700,000 associated

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jobs. In recent months we have secured investments from Ford, Siemens, Nissan, Fujitsu and Chungwa. That equals over 11,200 jobs. In the past financial year alone we won some 454 inward investment projects supporting some 91,000 jobs. Those are jobs for tomorrow's industries--highly skilled and bringing the best management standards without any bamboo ceiling or whatever it might be. The noble Lord will be pleased to hear that the managing director of Samsung is a Scot and the managing director of Nissan is also British.

Those inward investments also have the exciting potential on which the noble Lord, Lord Ezra, clearly focused. There is a potential to move down the supply chain of industry. I am only sorry to have to say that there is an extremely interesting announcement on such a project which I hope will come forward within the next 48 hours--unfortunately, 48 hours too late for my purposes, but nevertheless very welcome.

Those who invest in our country from abroad add significant strength to our industrial economy. Overseas-owned manufacturers provide one-third of all manufacturing investment; nearly one-fifth of manufacturing employment; over one-fifth of manufacturing output and around two-fifths of UK-manufactured exports--a point made by my noble friend Lady Seccombe. We are determined to maintain that enviable record. We must remain competitive if we are to continue to attract investment.

The noble Lord, Lord Borrie, advised us in some respects to be wary. If the type of inward investment we were attracting was the screw-driver assembly plant type, then I could understand his misgivings. But there has been what I see as a fundamental change not only in the quality of the job, but also in the research and development that comes with them. Samsung and Siemens are classic examples of that. It is interesting that Samsung not only brought its plant to the United Kingdom, but also intends to provide up to 500 jobs in the City of London by the year 2000, their European regional headquarters being sited here.

Britain has many attractions for the inward investor. It has a strong economy; a pro-business environment and the English language, which my noble friend Lord Geddes referred to. We have no foreign exchange controls nor restrictions on sending profits abroad. Britain offers the best available combination of a skilled and flexible workforce, low taxes and lower production costs. To pick up a point made by the noble Lord, Lord Cuckney, we now have a stable regulatory regime. It can only be tested in this way. When I have taken trade missions abroad, seeking investment in other countries, the keenest disincentive in those countries is that there is a regulatory regime that is unstable or too heavy.

Another attractive feature of the United Kingdom is its valuable research and university base. No doubt that is worthwhile. The noble Lord may be interested to know that there are now over 50 science parks which create an ideal environment in which companies can develop links with researchers. I believe that the list of inward investment successes is a testimony to the excellent and continuing work of the Invest In Britain Bureau and, I hope increasingly, Business Links. Every

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effort is made to ensure that the process of setting up in the United Kingdom is as easy as possible and that investors have quick access to the best advice. I also pay tribute to the work of the Foreign and Commonwealth Office, not only for their promotional work in relation to inward investment but also in relation to exports. I am grateful to the noble Lord, Lord Rathcavan, for his kind remarks about the Northern Ireland Office. Some 4,000 jobs have been created as a result of inward investment since the ceasefire. That is extremely desirable. Clearly, we are keen to see that figure rise even further.

The noble Lords, Lord St. John of Bletso, and my noble friend Lord Cuckney asked what was being done to promote London as a financial services centre. Clearly, that is equally important in terms of inward investment. There is now a new City Promotional Panel to promote our service industries, and clearly London is the jewel in the crown. That panel is an important step forward in co-ordinating the promotion of financial services and the attractions of the City of London in particular. The city's attractions as a European financial and headquarters centre are marketed actively not only by Invest in Britain but by London First Centre and the Corporation of London.

We do not stand alone in the world looking for inward investment. It is now a global activity. Increasingly, we live in an open, global marketplace. Attitudes to overseas investment throughout the world have undergone a dramatic change. Where it was once regarded with suspicion, it is now eagerly sought. I do not believe that we should resist it. The noble Lords, Lord Borrie and Lord Wallace, were concerned that we might disappear under foreign ownership. In 1994 cross-border acquisitions made by United Kingdom firms overseas amounted to over £15 billion. At the same time, acquisitions made by overseas firms in the United Kingdom were valued at just over £5 billion; in other words, our acquisitions were about three times as large as those who invested here.

The noble Lord, Lord Haskel, highlighted that there had been a fall in inward investment recently. In that he is technically correct. The figures for inward investment flows in 1994 were lower than those for 1993. However, this was due mainly to a fall in the flow from the United States. The total United States outward investment fell by about a third in that year. Notwithstanding that fall, we still enjoy about two fifths of the Untied States inward investment to Europe and about one-sixth of US investment in global terms.

Concern was expressed that there might be a degree of safeguarding of the ownership in the manufacturing sector. The noble Lord, Lord Peston, indicated that he did not regard that to be important. I share that view. Fascinatingly, last week when motor sports were discussed, it became quite clear exactly what was being invested in here by a most extraordinary range of companies from around the world. I would have thought that Ford was regarded by many people in this country as a British company. Not only do people work in it now but their fathers and grandfathers may also have worked for that company. I do not believe that ownership is that important a feature.

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The noble Lord, Lord Astor, raised the specific point about Jaguar. We are fully aware of the position on the X200 project. We continue to have a close and, I trust, positive dialogue with the Commission, and we have provided it with extensive information to enable it to evaluate that project. I assure the noble Lord that Her Majesty's Government is determined to keep Jaguar within the United Kingdom.

There has not been over a period of change, as some have feared, any significant degree of disinvestment in the United Kingdom by investing companies. There are signs that existing US investors are reviewing their pan-European operations in order that they remain ahead of their competitors. As one may expect, there is a standard form of rationalisation, but we appear to be doing very well. The noble Lord, Lord Ezra, picked up a point very much at the centre of the Invest in Britain Bureau's present strategy, that we should emphasise the role of aftercare. It should be made known to those who have already come here as inward investors how welcome they are. I believe that the best proof of the success of that approach is the recent major expansion that Fujitsu have announced.

Bedevilling discussions about inward investment is the issue whether or not we have attracted investment here because labour costs are lower than elsewhere in Europe or the world. The Government do not associate themselves with any notion that the case for inward investment depends upon the concept of a low-wage economy. We are concerned to ensure that labour unit costs are low. They are probably about 60 per cent. of German labour unit costs. In that context, what is of interest is that the take-home pay of someone who works in the car industry for a company owned by a German company is probably 80 per cent. of the take-home pay of a worker in Germany, whereas the cost of living here is significantly lower. For example, in terms of real take-home pay a single person in the United Kingdom is second only to Luxembourg in terms of the European Union.

I stress that the issue of wages does not seem to be the most direct point in terms of attraction. While it is important that labour unit costs should be low, actual wages are not that important. I believe that it is the experience of anyone who has had contact with inward investors that the general pattern is that they pay at, or in many cases above, the going rate. What concerns them are the broader social costs.

Concern was expressed by both the noble Lord, Lord Laing, and Lord Wallace, that inward investors received more favourable assistance than indigenous investors. Regional selective assistance operates under the same rules and regulations both for indigenous and foreign companies to set up, expand or safeguard managing facilities, resulting in a net creation or safeguarding of jobs in United Kingdom assisted areas. Both noble Lords may be interested to know that some 60 per cent. of RSA goes to United Kingdom companies and only 40 per cent. to foreign investors.

My noble friends Lord Wade and Lord Shrewsbury were concerned that some areas of the country might not secure the same level of support as others. It is our

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view that we cannot promote individual locations or regions to foreign investors, since decisions on the location of investment are for the commercial judgment of the companies themselves. However, in 1995-96 the IBB made grants totalling approximately £8.8 million towards the funding of the inward investment activities of the English regional development organisations and similar activities in the east and south-east regions. That is an increase of 57 per cent. compared with 1993-94.

There may be arguments about the levels of incentives or the areas in which they are made available, but there are certainly incentives in place. What I would clearly wish to avoid is that there should be any disincentive to investment. I would be particularly concerned were there to be any disincentive north of the Border. That theme was taken up, first, by my noble friend Lord Oxfuird, and then by the noble Lords, Lord Laing and Lord Goold. I heard very clearly what the noble Lord, Lord Laing, had to say but I think it is worth appreciating that even if corporation tax were not payable by a Scottish company to a Scottish Assembly, should that folly be perpetrated on Scotland, all those who worked in Scotland within those companies might face the risk of having to pay that extra 3p in income tax, whether the managing director or someone sweeping the floors. Even if Locate in Scotland did not draw that risk to the attention of potential inward investors to the United Kingdom, I have no doubt that such a doughty fighter for his own region as my noble friend Lord Wade would make it known to them that there was that disincentive north of the Border. Being the sponsor Minister for the north-east of England, I have no doubt that those responsible for attracting inward investment there would similarly make that point. I do not believe that anyone would seriously take up the stance that extra income tax payable north of the Border would not affect the distribution of inward investment or the location of existing jobs between England and Scotland.

I leave the matter with just this observation. The noble Lord did not care for what he described as the "threat" of the noble Lord, Lord Laing, which I certainly did not understand it to be. But when he promised that the next Labour Government would be as good as the last Labour Government, I regarded that as being the one threat that has truly been issued during the course of the debate this evening.

Another area which threatens a serious level of disincentive with regard to inward investment is that of the social chapter. What we have to remember is that the United Kingdom is not only competing for inward investment and trade with other European countries but we are also competing with other countries in eastern Europe which are not members of the European Union and indeed with the United States, where statutory regulations on employer-employee relations are relatively limited.

I hasten immediately to say to the noble Lord that I shall not engage in discussion on the minimum wage. For what concerns me most about the impact of the social chapter is that if we were to lose our flexibility of hours, including shift working, there would be a serious risk of losing inward investment. If we were to accept restrictions on hours being worked, I have no

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doubt that the keen competitive edge that we have at the moment and which, if I may remind noble Lords, has been remarked on by the former President of the European Commission, would be lost. He accepted that Britain would remain a paradise for inward investment so long as we kept our position outside of the social chapter. All those parts of the package are more significant than even the minimum wage.

Inward investment is all about partnership. At one time I was asked to be clear that it was not just success of the Invest in Britain Bureau that brought this all about. I am ready enough to acknowledge that. It is a partnership of national, regional and local organisations, Business Links and the like. I know from my experience in the north-east of England that that has certainly come into place. Siemens is a brilliant example. It took a decision to invest in the United Kingdom in late July. By a skilful partnership in the north-east of England, it was possible to cut the sod, with all permissions granted, by the beginning of December. I do not believe that a comparable pattern could have been achieved anywhere else within Europe. That is clearly important and I am glad to pay that tribute to the partnership that brought it about.

I intended to conclude with a series of quotable quotations from foreign investors around the world. I shall restrict myself to just two. First, the chairman of BMW recently said:

    "Structural change has made Britain by far the most attractive place to invest in Europe".

Perhaps I may say to my noble friend Lord Lyell, given his keen interest in the pharmaceutical industry, that the chairman and chief executive of the pharmaceutical company Upjohn had this to say:

    "London is the centre of the globe in terms of the pharmaceutical industry".

The United Kingdom has been voted the world's most popular destination for foreign direct investment, ahead even in 1996 of China. A survey by Corporate Location showed that the United Kingdom was being considered by 27 per cent. of foreign investors for projects within the next three years. In citing these figures, I hope your Lordships do not believe that the Government are complacent. Far from it. As we have achieved this position of primacy, our task must be to ensure that we do not lose it.

6.25 p.m.

The Viscount of Oxfuird: My Lords, I am very, very pleased and honoured to have been able to facilitate this debate. I genuinely believe that the skill, experience and dignity with which this subject has been treated demand that Hansard of your Lordships' House should be available on every news-stand in the country. But unfortunately we cannot afford to do that. I thank all those who have participated in the debate. I beg leave to withdraw my Motion.

Motion for Papers, by leave, withdrawn.

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